We all hear about inclusive business nowadays. And rightly so because business, especially big business, is the most important force in growing the middle class in our country by spreading the fruits of our healthy economic growth.
But let’s do a reality check. According to official data, poverty among Filipino households is about 16% and about 21% among individuals. These levels are improvements from the 2015 levels of 22% for households and 27% for individuals. However, we shouldn’t rush to celebrate yet since these statistics are based on the official poverty line of P10,481 per household which most people find ridiculously low. Mahar Mangahas of Social Weather Stations puts the actual poverty rate at above 40% based on extensive data on self-rated poverty that the social indicators organization has tracked through the years.
The World Bank report “Making Growth Work for the Poor” noted that the Philippines has one of the slowest declines in poverty in the region since 2005 at only 0.9 percentage point annually compared to Vietnam and Indonesia which have reduced poverty by more than two percentage points annually. Even more troubling, the drop in our poverty rate per one percent GDP per capita increase is less than 0.4 percentage point versus Vietnam’s one percentage point!
The report observes that “despite the good economic growth, only a small share of the population has made it to the middle class, and more than 10% of Filipinos remained vulnerable to falling into poverty.” For those who claim that economic growth “trickles down” in our country — well, a very slow trickle is exactly what we have when compared to our neighbors. In short, our economic growth is more exclusive than inclusive.
A research note also by the World Bank entitled “Employment and Poverty in the Philippines” gives a major reason for this in two words: “bad jobs.” Bad jobs are low-paid and informal, and thus are not covered by labor regulations, or are involuntarily part-time, temporary or casual. While our economic growth has resulted in many more jobs being created by businesses, most of these jobs cannot sustain decent human lives. In fact, “in-work poverty” has become the norm in the country.
I’ve often been assured by business leaders that they are helping the country by creating jobs. Fair enough. But unless the jobs created are good jobs, they trap people in poverty. Paradoxically, businesses which offer bad jobs are a major reason why the Philippines has one of the most persistent poverty rates in the region and among the highest levels of inequality in the world.
The way forward for inclusive business requires a long view from business leaders. Firstly, businesses need to avoid keeping workers at the minimum wage. Even business leaders will grant that the minimum wage is not sufficient for a decent life. Therefore, they must be mindful that keeping people at that level is a poverty trap.
Secondly, workers need to graduate from minimum wage but this will have to be paid for by increased productivity through effective training. The key is then to share the fruits of productivity with the workers through higher pay. Unfortunately, the Employment and Poverty report cited above reports that while labor productivity grew by more than 30% since 2005 real wages dropped by 5%! Where did the productivity gains go? The top 1% owns more than half of the nation’s wealth, according to a Credit Suisse Wealth Report.
Delano Villanueva, former economist at the International Monetary Fund and author of Macroeconomic Policies for Stable Growth, calls it “social extraction” — a process where the elite get politicians on its side to increase the returns on its already substantial capital advantage while underpaying workers, most of whom are the poor.
On Aug. 19, the Business Roundtable (BRT) — the association of US CEOs which includes Amazon’s Jeffrey Bezos, Apple’s Tim Cook, General Motors’ Mary Barra and IBM’s Ginni Rometty — announced that it is moving away from prioritizing shareholders and is now committing to all stakeholders of the corporation. The BRT is now pushing for “investing in… employees by compensating them fairly and providing important benefits and supporting them through training and education that help develop new skills for a rapidly changing world.”
Similarly, the Management Association of the Philippines (MAP) held its annual International CEO Conference entitled The Future of Business: Sustainability, Development, Impact. MAP President Riza Mantaring explained that a key component of sustainability is talent management and taking care of the health and welfare of employees.
Our business leaders can transform our economy from social extraction to inclusion through good jobs.
Dr. Benito L. Teehankee is the Jose E. Cuisia Professor of Business Ethics and Head of the Business for Human Development Network at De La Salle University.